What a fantastic six months it’s been for Heartland Express. Shares of the company have skyrocketed 103%, setting a new 52-week high of $14.37. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Heartland Express, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Heartland Express Will Underperform?
Despite the momentum, we're cautious about Heartland Express. Here are three reasons why HTLD doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Heartland Express’s sales grew at a sluggish 3.8% compounded annual growth rate over the last five years. This was below our standard for the industrials sector.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Heartland Express, its EPS declined by 19.4% annually over the last five years while its revenue grew by 3.8%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Heartland Express’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping their customers, but in the case of Heartland Express, we’re out. After the recent rally, the stock trades at 142.3× forward P/E (or $14.37 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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